Armour Pharmaceuticals Ltd. vs Government of Andhra Pradesh and Others

Motilal B. Naik, J.—The Writ Appeal under clause 15 of the Letters Patent is filed assailing the order passed by the learned single Judge of this Court in Writ Petition No. 3362 of 1998 dated 31-07-1998.

Appellant herein is the petitioner in the said Writ Petition No. 3362 of 1998 which was filed under Article 226 of the Constitution of India seeking a writ of mandamus declaring the action of the respondents in issuing notification inviting tenders only from the Public Sector Undertakings tor supply of antibiotics is violative of Articles 14 and 19(1)(g) of the Constitution of India and a further direction to the respondents to allow the petitioner company and other companies to participate in the tenders for the supply of antibiotics to the respondents.

For the sake of convenience, the parties are referred to as per their array in the Writ Petition No. 3362 of 1998.

The factual matrix of the case of the petitioner-company is that it was incorporated as a private limited company in the year 1986 and the commercial production was commenced in the year 1988 by manufacturing pharmaceutical, mainly antibiotics. The petitioner-company was also registered under the Small Scale Industries Act.

It is the ca.se of the petitioner-company that it manufactures all types of formulations, i.e., power injections, liquid injections, ampoules, tablets, capsules and oral suspensions with its brand name and also undertakes job working for leading international and national companies. The petitioner-company has also built a new building at Anrich Industrial Estate, Bolaram, Medak District after investing about Rs. 9.5 crores. The World Health Organisation has issued a certificate to the petitioner-company appreciating the quality of products on par with the norms prescribed by the World Health Organisation. According to the petitioner-company, it directly exports its products to foreign countries like Spain, Germany, United Kingdom, Netherlands, Denmark, Nigeria, Ghana, Russia, Ukraine, Vietnam, Uganda, Srilanka and Philippines and about 20 products of the pelitioner-company were registered in 12 foreign countries. Petitioner-company has also claimed that it secured number of awards for its excellence in the pharmaceutical field apart from securing the International Award for Commercial Prestige and the Best Trade Name from Institute of National De Mercadotecnia, INAME, A.C., Mexico. The petitioner-company has also received International Excellence Award from the Indian Council for Small and Medium Exporters, New Delhi.

According to the petitioner-company, its marketing team consists of professionals with rich experience in the pharmaceutical field and there are about 250 employees in the company. The turnover of the petitioner-company is about 7.6 crores per year. Petitioner-company claimed that it supplies antibiotics to other States viz., Karnataka, Tamilnadu and Kerala at lesser rates than quoted by the public sector undertakings. It father claimed that it also supplied antibiotics to the Government of Andhra Pradesh at lesser rates.

While so, respondents 1 and 2 invited tenders for the supply of drugs/ medicines/consumables/surgical consumables and other general drugs from any manufacturers but invited tenders for the supply of antibiotics from the public sector undertakings only. According to the petitioner-company the policy of the Government is to encourage Small Scale Industries, but the impugned action cf the respondents in inviting tenders for supply of antibiotics only from the public sector companies is discriminatory, against the public interest and offends Articles 14 and 19(1)(g) of the Constitution of India.

Under these circumstances, petitioner-company pleaded before the learned single Judge of this Court for issuance of a direction as indicated above and also to declare the Government Memo No.26836/M1/97-1, HM&FW (M1) Department, dated 29-11-1997 through which the supply order of antibiotics is reserved only to public sector undertakings as illegal.

On behalf of respondents 1 and 2, a detailed counter was filed by the second respondent. In the counter, it is averred that the supply of antibiotics to the respondents 1 and 2 is reserved only to public sector enterprises whereas general drugs supply tenders are open to Small Scale Industrial Units. It is further averred in the counter that as per the policy decision and also as per Rule 13 of Article 125 of A.P.F.C. Volume I, it is a limited tender system and there is no question of violation of any fundamental rights of the petitioner-company. According to the respondents, out of 430 items notified in the tender notification, except 18 items of antibiotics, the remaining 412 items are general medicines and they are open to SSI units also. It is further averred in the counter that antibiotics alone are sought to be purchased from the standard company as they are vital for the survival of the patients from all types of infectious diseases and as such, no compromise can be made in the quality of antibiotics. This policy decision was taken in the interests of suffering public only. It is indicated in the counter that instances have come to the notice of the respondents that substandard drugs were supplied to the Government Institutions by some SSI units. According to the respondents as per G.O. Rt. No.871, HM&FW (M1), dated 12-6-1997, a committee has been constituted and it resolved to invite the tenders for antibiotics from public sector undertakings only, pursuant to which the tender notification was issued and unless the action of the respondents is mala fide, the petitioner-company cannot question the policy decision of the Government.

During the pendency of the Writ Petition, M/s. Rajasthan Drugs and Pharmaceuticals Limited, represented by its Sales Manager, Kamal Kannan got itself impleaded as third respondent in the writ petition by an order of this Court in W.P.M.P.No.24423 of 1998 dated 23-7-1998. In the counter filed by the third respondent, the action of the respondents 1 and 2 in inviting tenders only from public sector undertakings for supply of antibiotics is justified. The third respondent futher stated that as a public sector company it has sufficient experience in the field of manufacture of drugs and it has been supplying these drugs to various Government Hospitals also. It is further submitted that its tender has been accepted and it has been supplying the antibiotics to the respondents 1 and 2 and its contract is in midway.

For the counter filed on behalf of the respondents 1 and 2, a reply affidavit has been filed by the petitioner-company clarifying the doubts expressed by respondents 1 and 2 and stated that it is manufacturing various drugs including antibiotics and supplying the same not only to Indian companies but also to foreign country-companies. It is further averred in the reply affidavit by the petitioner-company that it is also supplying antibiotics to the prestigious institution like Nizam''s Institute of Medical Sciences and also to the A.P.Vaidya Vidhan Parishad. In the reply affidavit it is pointed out that the rates quoted by the petitioner-company is 25% lesser than the rates offered by the public sector companies and moreover, certain public sector undertakings have also found supplying substandard quality of antibiotics which factor has also been admitted by respondents 1 and 2 in their counter.

Respondents 1 and 2 have also filed their additional counter-affidavit reiterating their stand and sought for dismissal of the writ petition.

The learned single Judge, on a consideration of the claims and counterclaims and also the submissions advanced on behalf of the respective parties, was not persuaded to accept the submissions made on behalf of the petitioner-company and dismissed the writ petition by an order dated 31-7-1998 by placing reliance on the ratio laid down by the Supreme Court in a decision reported in Krishnan Kakkanth Vs. Government of Kerala and ohters, . While dismissing the writ petition, the learned single Judge has observed that if life saving drugs like antibiotics arc purchased from Small Scale Industries, there is every likelihood of supplying substandard drugs by such industries and underquoted prices which would endanger the lives of the people and the Government does not want to take risk in respect of antibiotics used by the poorer sections of the society. The learned single Judge further observed that the discrimination, if any, is certainly justified in the interests of public health.

This order of the learned single Judge dated 31-7-1998 passed in Writ Petition No. 3362 of 1998 is assailed before us.

Sri M.V. Ramana Reddy, learned senior Counsel appearing on behalf of the petitioner-company submitted that the petitioner-company is manufacturing various drugs and is also exporting them to various countries and won acclaim and laurels from World Health Organisation also. Learned senior Counsel submitted that the petitioner-company has also supplied various drugs including antibiotics to Nizam''s Institute of Medical Sciences and also to A.P.Vaidya Vidhan Parishad and the standard of antibiotic drugs manufactured by the petitioner-company is in no way inferior to that of the public sector undertakings. Learned senior Counsel contended that inviting tenders for supply of antibiotics exclusively from public sector undertakings thereby eliminating petitioner-like companies is highly arbitrary, discriminatory and offending Articles 14 and 19(1)(g) of the Constitution of India. Learned senior Counsel contended that the learned single Judge after having noticed that the drugs supplied by the public sector undertakings are substandard and yet, erred in upholding the tender notification issued by respondents 1 and 2, which according to the learned senior Counsel is unsustainable. Learned Counsel nextly contended that the learned single Judge came to a wrong conclusion mat if life saving drugs like antibiotics are purchased from the small scale units, mere is every likelihood of getting substandard drugs at under-quoted prices. According to the learned senior Counsel, the learned single Judge has failed to appreciate the fact that the public sector undertakings, if not all, some of them are supplying substandard drugs and therefore, creating absolute monopoly in them for supply of antibiotics is unwarranted and would also endanger public health. It is further contended that no adverse reports are noticed against the petitioner-company by the respondents nor the petitioner-company was ever blacklisted for supplying spurious or substandard drugs and yet, under the guise of a policy, the respondents 1 and 2 are discriminating the petitioner-company and have only invited tenders for supply of antibiotics from public sector units, which according to the learned Counsel, offends Articles 14 and 19(1)(g) of the Constitution of India. In support of his contentions, learned senior Counsel has drawn our attention to a decision of a Division Bench of this Court reported in Mahindra and Mahindra Ltd., Bombay and Another Vs. State of Andhra Pradesh and Another, , and another decision of a Division Bench of the Punjab & Haryana High Court reported in Punjab Drugs Manufacturers Association Vs. State of Punjab and Others, . This apart, learned senior Counsel has also drawn our attention to an unreported decision of a Division Bench of the Karnataka High Court in Writ Appeal Nos.983 to 993 of 1991 and batch dated 3-6-1991 and submitted that in similar set of circumstances, the Karnataka High Court has set aside the Government Order reserving the supply of antibiotic drugs exclusively to public sector undertakings. Under these circumstances, learned senior Counsel submitted that the impugned order of the learned single Judge dated 31-7-1998 be set aside and the writ petition be allowed.

On behalf of respondents 1 and 2, learned Government Pleader for Medical and Health sought to sustain the impugned order passed by the learned single Judge. It is contended that since (he antibiotics are life saving drugs, the Government has formulated a policy pursuant to which supply of such antibiotics could only be invited by calling tenders from public sector units only and the petitioner-company cannot have any grievance for the same. It is futher contended that no discrimination is made out against the petitioner-company as supply of other drugs was open for small scale industrial units also. Learned Government Pleader, therefore, submitted that the learned single Judge has rightly dismissed the writ petition and no interference is called for in the well considered decision of the learned single Judge and sought dismissal of this Writ Appeal.

On behalf of the third respondent, Sri N.Subba Reddy, learned senior Counsel has justified the action of respondents 1 and 2 in inviting tenders only from public sector undertakings for supply of antibiotic drugs. Learned senior Counsel contended that the paramount consideration being public health, no compromise is possible in this regard and therefore, no individual has any right to insist the Government to do a particular act. In support of his contentions, learned senior Counsel has also drawn our attention to a decision of the Supreme Court reported in Shri Sachidanand Pandey v. The State of West Bengal, AIR 1987 SC 1109.

In the wake of these divergent submissions, the questions that emerge for consideration before us are,

(1) Whether the respondents 1 and 2 are justified in inviting tenders for supply of antibiotic drugs only from Public Sector Undertakings?

(2) Whether the impugned order of the learned single Judge is sustainable?

On a careful reading of the decisions cited by all the learned Counsel, the principle that emerges is that the State is entitled to impose reasonable restrictions in the interest of public health. If such restrictions are intended to achieve the avowed object of public health, the plea of discrimination on the ground of unreasonable restrictions cannot stand to legal scrutiny. Applying this ratio which culminated from the various decisions of the Supreme Court and High Courts, the Government has issued Memo No.26836/Ml/97-1, HM&FW(M1) Department, dated 29-11-1997 which permitted the authorities to invite tenders for supply of antibiotics from the public sector units only. Respondents 1 and 2, in the counter filed on their behalf, have indicated that a Committee was constituted for this purpose and on the basis of the earlier happenings, the Committee has resolved that supply order of antibiotic drugs will be exclusively given to public sector units. However, it is significant to note that in the counter and additional counter filed on behalf of respondents 1 and 2, it is admitted that the public sector units are supplying substandard drugs and a list of such public sector companies has also been placed before us and the same list was also placed before the learned single Judge, On a careful scrutiny of the counter and the additional counter filed by respondents 1 and 2, it is nowhere indicated that the petitioner-company has no capability of supplying the antibiotics nor it has supplied substandard drugs. It is also not disputed that the petitioner-company has supplied antibiotics to the Nizam''s Institute of Medical Sciences and A.P.Vaidya Vidhan Parishad. Supply of antibiotic drugs by the petitioner-company to the State of Tamil Nadu and Karnataka is also not disputed.

In the additional counter-affidavit filed on 4-7-1998, on behalf of the respondents, at para-7, it is stated thus:

"By seeing the infrastructure facilities etc., this S.S.I. Unit (petitioner-company) alone can allow to include in participation of rate Contract for anlibiotics but the other S.S.I. Units which are also manufacturing the antibiotics without having required infrastructure will also claim for the same and now it shows discrimination among S.S.I. Units."

Therefore, this averment of the respondents 1 and 2 makes it clear that the petitioner-company is having the required infrastructure to manufacture and supply antibiotics. But their only objection seems to be that if the petitioner-company is allowed to participate in the tender process for supply of antibiotics, other S.S.I. Units which do not have infrastructure facilities would also claim for participating in the tenders. This objection of the respondents 1 and 2 is improbable inasmuch as the same is not based on any scientific evaluation and assessment. When the respondents 1 and 2 themselves admit that the petitioner-company has the required infrastructure to manufacture and supply antibiotics, denying permission to it from participating in the tender process is nothing but a discriminatory action. It is not the case of the respondents 1 and 2 that the petitioner-company is blacklisted nor it has supplied spurious drugs or it has a track record of supplying substandard drugs at underquoted prices. Therefore, in the absence of any incriminating material against the petitioner-company so as to deny it the opportunity of participating in the tender process of supplying antibiotics, we are of the view that the respondents 1 and 2 are not justified in inviting tenders for supply of antibiotics from public sector units alone.

No doubt, antibiotic drug is a life saving drug and there cannot be any compromise about the quality of this drug. When precious lives of people are involved, substandard drugs shall not be used at all. It is also admitted that life saving drugs supplied to various Government Hospitals are administered to large sections of population and there cannot be any compromise on the quality of these drugs. The Government has necessary machinery in preventing the substandard or spurious drugs entering the market and the Government has also got necessary wherewithal to combat the menace of substandard drugs.

Insofar as the quality of the antibiotic drug supplied by the petitioner-company is concerned, it is not at all the case of the respondents 1 and 2 that the said antibiotic drug manufactured by the petitioner-company is substandard or spurious. In fact, when a Government Hospital or Department decides to accept the antibiotic drug from a private manufacturer, such drug will be tested by experts in the field as to its quality and side effects. If the said drug passes through the required mandatory tests, then only it will be accepted since it is a life saving drug. When the antibiotic drug manufactured and supplied by the petitioner-company is accepted by the respondents 1 and 2 as of good quality and yet keeping the petitioner-company out of the tender process is nothing but discriminatory.

However, it is the case of the respondents 1 and 2 that as a matter of Government policy, private small scale industrial units are not permitted to participate in the tender process of supplying antibiotic drugs. Normally, Courts are slow in interfering with the policy matters of the Government as the paramount consideration being the public interest. It is no doubt true that the policy of the Government, if goes against public interest, could be questioned in a Court of law. The test is whether a wing of the Government could deny fair competition in a programme which is meant for the citizens of the State?

Respondents 1 and 2 averred in their counter that though there are more than 400 drugs in the tenders, only 18 drugs of life-saving i.e., antibiotics, are required to be supplied exclusively by public-sector undertakings as there cannot be any compromise on the public health. This peculiar stand of the respondents is preposterous inasmuch as it is obvious that they are prepared to compromise about the quality of the rest of the drugs. After all, the respondents 1 and 2 are only inviting tenders and they are not straightaway awarding the contract to the petitioner-company. If the antibiotic drug sample submitted by the petitioner-company is not of a good quality or if it is a substandard one, then definitely the respondents have a right to reject the tender of the petitioner-company since there cannot be any compromise as far as public health is concerned. But inviting tenders only from public limited companies for supply of antibiotic drugs despite the fact that some of the public sector companies have a track record of supplying substandard antibiotic drugs, is not justified.

The ratio laid down in the decision cited Shri Sachidanand Pandey v. The State of West Bengal (supra), by the learned senior Counsel appearing on behalf of the third respondent cannot be disputed, but the question is whether the said ratio could be made applicable to the facts of the present case?

It is the responsibility of the State to ensure a meaningful life to every citizen and such meaningful life is possible if the health of the citizens is also taken care of apart from other requirements. A duty is cast on the State to ensure that the drugs which are administered to the citizens are of good quality and as such, the Government must take all precautionary measures so that only quality drugs are supplied for the use of people. This effort of the Government would be in the direction of fulfillment of an obligation arising under Article 21 of the Constitution of India.

Coming to the instant case, we do not see any valid reasons in denying the petitioner-company an opportunity to participate in the tender process. When the authorities are satisfied that the antibiotic drugs manufactured by the petitioner-company satisfies all tests and prescribed requirements, there cannot be any reason for the respondents 1 and 2 to deny the petitioner company an opportunity of entering in the competition along with others. As discussed in the foregoing paragraphs, the only reason to deny the petitioner-company from participating in the tender process is that if it is permitted, then other small scale units will also make a claim for participation. We do not think, this is a valid ground to deny the petitioner-company to participate in the tender process. The decision cited Shri Sachidanand Pandey v. The Stale of West Bengal (supra), therefore, has no application to the facts and circumstances of this case.

Having regard to the above discussion, we are inclined to hold that the restrictions imposed in Government Memo No.26836/M1/97-1, HM&FW (Ml) Department, dated 29-11-1997 are unreasonable and they are not in the interest of public. Accordingly, we set aside the said Government Memo dated 29-11-1997.

The learned single Judge, in our view, has not appreciated the relevant aspects in the right perspective and has erroneously accepted the version of respondents 1 and 2 that inviting tenders for supply of antibiotics only from public sector undertakings is in the interest of public. In the light of out discussion in the foregoing paragraphs, we are not inclined to concur with the observations of the learned single Judge. Accordingly, we set aside the impugned order dated 31-07-1998 passed by the learned single Judge in Writ Petition No.3362 of 1998.

During the course of hearing of the Writ Appeal, we are told that the tender of the third respondent-a public sector undertaking, based in Rajasthan, was accepted by respondents 1 and 2, pursuant to which the third respondent has been supplying the antibiotic drugs and the contract is also coming to an end. Keeping this factor in mind, we do not propose to disturb the present arrangement of awarding the tender contract by respondents 1 and 2 to the third respondent. Once this contractual period with the third respondent comes to an end and since we have set aside the impugned Government Memo No.26836/M1/97-1, HM&FW (Ml) Dept., dated 29-11-1997 issued by respondents 1 and 2 as not in the interest of public, the respondents 1 and 2 shall also permit the petitioner-company to participate along with other public sector undertakings for supply of antibiotics hereafter. Such participation of the petitioner-company would not be opposed to any public policy at all. When respondents 1 and 2 admit that some public sector undertakings were found supplying substandard drugs, we do not see any justifying reasons in reserving the tender notification for supplying antibiotics only to public sector undertakings. It is also brought to our notice that antibiotic drugs are not manufactured by any of the public sector undertakings operating in the State of Andhra Pradesh. This is yet another factor which has weighed our consideration in directing the respondents 1 and 2 to permit the petitioner-company also to participate in the tender-process of supplying antibiotic drugs to Government Hospitals. We also do not see any logic in preventing the petitioner-company from supplying antibiotic drugs to Government Hospitals only, when the petitioner-company is supplying antibiotic drugs to Nizam''s Institute of Medical Sciences and A.P.Vaidya Vidhan Parishad.

For all the foregoing reasons, we allow this Writ Appeal to the extent indicated above. No costs.